Tuesday, 4 November 2008

Decision delays theme trading updates

(By Anthony Miller) The increasing propensity for customers to delay IT purchase decisions was a recurring theme in three trading updates this morning. The gloomiest came from Parity (see here) in which CEO Alwyn Welch reported seeing “market conditions deteriorate with buying cycles (continuing) to lengthen and overall client spending tightening. We expect this difficult environment to continue well into 2009 (our emphasis)”. Obviously the aborted sale of Parity’s training business didn’t help, but the company felt pressure in both its recruitment business (though keeping profitability up) and its solutions business. Parity will take further restructuring charges.

There were similar statements, but not quite so gloomy, from logistics software player, Kewill, which reported its interim results, and product lifecycle management software firm, Sopheon, in its trading statement. Both alluded to deal slippage and buyer caution. Tiny Sopheon is particularly at the mercy of large deal flow, with two substantial contracts saving the recent quarter. Management has £8m FY revenue visibility and an ‘active’ pipeline, but it’s rather clear that one or two deals either way could be the difference between a hit and a miss. Kewill CEO, Paul Nichols, warned of a FY revenue miss though still hopes to report pre-tax profit in line with market expectations. Germany was Kewill’s best market as a result of the government mandating electronic filing of all export declarations. However, UK and NL revenues declined as order-taking slowed. US revenues also deteriorated as a major project completed with no follow-on to fill the gap.

It’s hard to take comfort from these reports, though they are hardly a surprise. All three companies are hunkering down to protect margins as best they can, with no clear idea as to how long it will be before demand recovers. I think Parity is taking the realistic view; 2009 will not be a good year.

We're off now to meet EDS (dare I say, an HP company) EMEA CEO, Bill Thomas, to expand our own visibility on how the top end of the IT services food chain is faring. More later.

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